Since the UK housing market reopened after the March – May 2020 lockdown period we have seen the fastest rise in house prices since 2016 according to
Since the UK housing market reopened after the March – May 2020 lockdown period we have seen the fastest rise in house prices since 2016 according to Nationwide’s house price index, with annual price growth up a healthy 5% in September 2020.
Despite the shaky start to 2020 – when house prices were predicted to fall by up to 10% – is this increase in sales and new properties coming onto the market a sign of a property market boom or a short-term recovery period after the onset of the Covid-19 pandemic? And will a ‘bust’ be inevitable with the end of incentives such as the Government’s stamp duty cut and furlough scheme? We take a look at the key trends for the property market in 2020 and indications for 2021 and beyond.
Trends for 2020
In terms of property sales, there has definitely been an increase. Indeed, August brough Zoopla’s busiest month for 5 years and Righmove’s highest sales for 10 years, despite a 0.2% drop in their property price index (based on asking prices rather than sales or mortgage figures).
Property prices also seem to be on the up, with the Land Registry House price index, showing a rise of 2.9% year-on-year in house prices. Nationwide and Halifax figures for agreed sale prices (arguably more accurate than asking prices) have indicated an increase of 2.65% for UK property prices for the year to July 2020 and Halifax data has also shown a 5.2% increase for August 2020 compared to August 2019.
For many industry insiders, the Government’s stamp duty cut has been the biggest incentive for increased sales and potential house price inflation, meaning buyers are completely exempt from stamp duty fees for properties below £500,000 (a saving of up to £15,000) until 31 March 2021.
There has also been a substantial rise in the demand for properties in countryside and coastal areas and space for home working has also been topping buyer requirement lists as we seek to make more significant lifestyle changes in the wake of the pandemic. Approximately 50% of the UK workforce were working from home in April 2020 at the peak of the lockdown period and many of us are still in no rush to return to offices and lengthy commutes.
Predictions going forward
Whilst the current boost to the property market has left many in the industry optimistic, experts are wary that the sudden upward shift in the housing market this summer may have been down to a backlog of properties and new buyers suddenly able to enter the market and the incentive of the Chancellor’s stamp duty cut.
The impact of the end of the furlough scheme on 31 October 2020 and the Brexit fall out suggest both rising unemployment rates and a resultant reduction in household earnings, which is likely to have a significant impact on the continued growth of the housing market. The end of the job retention bonus for employers in January 2021 and the end of the stamp duty holiday in March 2021 are also likely to have a further impact on the nation’s purse strings. Indeed, the recent price boom could actually become an obstacle for some buyers who may be priced out of both the property market and mortgage lender requirements for hefty deposits and higher rates.
In September 2020, to mitigate the economic fallout, the Chancellor announced a new Job Support Scheme which will start on 1 November 2020 in place of the furlough scheme and run until April 2021. It was also announced that businesses borrowing money through the government’s loan scheme will be given more time to repay the money and a VAT cut from 20% to 5% for hospitality and tourism companies has also been extended from January to March 2021.
But despite these additional incentives, the longer-term predictions for the economy once Government support schemes come to an end suggest that we will see a decrease in both house sales and house prices. A reduction of between 5% and 14% in house prices is suggested by the economic forecaster the EY Item Club and the Centre for Economics and Business Research (CEBR) respectively until the UK’s economy (hopefully) sees an upturn later in 2021.
As such, potential buyers and vendors are advised not to rush into the property market or buy a home based solely on current market trends or stamp duty incentives otherwise they may run the risk of seeing a property decrease in value over the next year, or even worse, become caught in a situation of negative equity, where they owe more than their property is worth.